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Common Plots of Economic History

A willingness to believe

The ability to believe things that aren't true or haven't happened yet is the foundation of all economic growth and decline.

Every society tells fictional stories and is willing to believe them to some extend. It isn't a bad thing: It's the root of most growth. Most economic growth comes from optimism, and optimism requires a degree of believing in something you can't or haven't verified.

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Common Plots of Economic History

Common Plots of Economic History

https://www.collaborativefund.com/blog/common-plots-of-economic-history/

collaborativefund.com

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Key Ideas

Seven universal plots

There are only seven plots that are so fundamental to the way we tell stories that every storyteller uses one of them: Overcoming Monsters, Rags to Riches, The Quest, Voyage and Return Rebirth, Comedy, Tragedy.

It's not that good stories are the same, but the plots are less diverse. When we realize this, we see stories in a new light, because we have come to the heart of what stories are about and why we tell them.

Economic history

Looking for a few universal plot patterns reveals things fundamental to how all people think, which are likely to be repeated in the future and relevant to your own situation. This idea also applies to how the economy works.

Economic history can seem complicated because it's part of politics, psychology, sociology, criminology, biology, military, technology, education, finance, etc. But within all that complexity is a lot of similarities.

The lens to look through

  • People seem to want the same economic things – security, power, admiration, fulfillment.
  • They tend to use the same tactics to acquire those things - work, risk, incentives, persuasion, theft, control.
  • They tend to fall for the same flaws pursuing those things - overconfidence, pessimism, underestimating how fast things can change, etc.

Although economic history may seem complicated, there are only a small number of broad story plots throughout the world and throughout time.

The limits of good ideas

A good idea taken to the furthest extreme becomes indistinguishable from a terrible idea.

The most important technological breakthroughs deliver such a high that most will fail to know the limits and will inevitably overdose. Railroads transformed every inch of the economy, from military tactics to where people could live and work. The excitement over rail's potential sparked overbuilding and cutthroat competition that pulled the country into economic chaos at least three times.

The history of oil, cars, banks, housing, and technology are identical. So are certain regulations, social programs, management principles, and business strategies.

A competitive advantage

The only thing harder than gaining a competitive edge is not losing an advantage when you have one.

Sears was the largest retailer in the world and so dominant at retailing efficiency that it could spread its efficiency to unrelated industries. But then the growing income inequality pushed consumers to either bargain or luxury goods, and Sears was left in the shrinking middle, becoming a shell of its former self.

The story of Sears losing its competitive advantage is not unique. Almost 40% of all public companies lost all their value from 1980 to 2014.

Losing an advantage

Five things contribute to the gravitational pull of competitive advantages:

  1. Being right instills too much confidence that you can’t be wrong. But the outlier success will have competitors chasing them and threaten to overtake you.
  2. Success tends to lead to growth. But a big organization is very different from a small one, and strategies that led to success at one size can be impossible at another.
  3. The irony is that people often work hard to gain a competitive advantage so they don't have to work so hard at some point in the future. Once you reached your goal and start to relax, your competitors and a changing world will creep in unnoticed.
  4. A skill that’s valuable in one era may be worthless in the next.
  5. Some success is owed to being in the right place at the right time.

Misunderstanding past progress

Future progress is underrated because past progress is misunderstood.

  • There are times when optimism is so great and so broad that we become blind to future risks
  • People tend to be optimistic about their own future but pessimistic about others. Most people you know are reasonably happy but suspicious over the direction of the country and its future. When people are cynical about others, a natural path is to discount what other people are capable of in the future.
  • Underestimating future growth, in general, is also a typical plot.

Underestimating general future growth

  1. Past progress as a one-time event misses how much of progress is incremental. A breakthrough never occurs in isolation but is the product of many little discoveries, often meaningless by themselves, that someone links together.
  2. Assuming that big current problems will prevent future progress. This misses that most progress feeds off big current issues.
  3. In real-time, it nearly always looks like progress over the previous decade has stalled, seeming to confirm that we've reached the limit of our innovation. This is because it often takes a decade or more for breakthroughs to be noticed. We will only recognize the best work of the last decade in the years to come.

Surprises are constant

Surprises are constant, and not necessarily because we’re bad at predicting, but because everything important in the economy is driven by power laws where a tiny portion of things are responsible for the majority of outcomes. No single forecaster can track every moving part.

A willingness to believe

The ability to believe things that aren't true or haven't happened yet is the foundation of all economic growth and decline.

Every society tells fictional stories and is willing to believe them to some extend. It isn't a bad thing: It's the root of most growth. Most economic growth comes from optimism, and optimism requires a degree of believing in something you can't or haven't verified.

Finding a breakthrough

A breakthrough is a big deal because no one had thought of it before. Because no one had thought of it before means it's likely either illogical or appears to violate previously accepted rules.

When someone pursues a breakthrough, as an entrepreneur, investor, or consumer, it requires a leap beyond your own abilities or the ability of someone else. It should not be surprising that stepping out might end up in failure. But without the willingness to move into the unknown, we would not have growth, productivity, and great innovation.

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Using Decision Trees
  • Understand the different outcomes that could happen (both positive and negative)
  • Calculate the expected return or loss of each outcome
  • Attach a probability to each outcome
  • ...
Use Decision Trees 

Elon Musk uses decision trees to make big decisions (a tool that uses a tree-like graph or model of decisions and their possible consequences, outcomes, and resources). They are particularly useful for avoiding stupid risks and big bets that aren’t likely to succeed.

Most became a billionaire by making unlikely big bets, as their expected return statistically was much higher than safer bets.

Build Deep, Long-Term Relationships

One of the best ways to get information is not from just being better at searching Google, it’s from learning how to build a network and get the information you need through that network. 

This network should include people’s lessons learned and hacks, topics that are too sensitive to talk about because they make someone look bad, and tacit knowledge (knowledge that people have but aren’t able to articulate).

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Us Vs Them

For more than two million years, our human ancestors lived in small groups that they considered their own. They created a demarcation of us vs them, a...

Being 'Themmed'

The mind is creating 'thems' all around us, with people putting other people in the 'in-group' or the 'out-group' all the time. This can be easily observed in office politics, as well as family discords.

People casually dismiss other people, ignore, discount, or attack them, reducing 'them' to a two-dimensional figure which they can use and throw at will, to further their own position, status, and identity.

Us and Them Are The Same

We need to stop creating mental divides and see the people around us as our common humanity.

  • We all feel pain and suffering.
  • We all die eventually.
  • We all lose our loved ones.

The way to recognize that we are 'them-ing' other people is to catch those subtle moments when we lose empathy, we use stereotypes, we discriminate, cast out or punish anyone.

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David Collis - Harvard Business School professor

“Most executives cannot articulate the objective, scope, and advantage of their business in a simple statement. If..."

David Collis - Harvard Business School professor
Invite Dissent To Build Others’ Commitment

An executive needs those she leads to translate strategic insights into choices that drive results. For people to commit to carrying out an executive’s strategic thinking, they have to both understand and believe in it. But repeated explanations don’t necessarily increase people’s understanding and ownership of strategy. Making them discuss the pros and cons of it make it so the problem is better understood and flaws are identified and fixed increasing ownership for success.

Identify The Strategic Requirements Of The Job

When someone is promoted into a function that requires strategic leadership it’s easy to spend time fixing what was wrong in their previous function but that often isn’t what the strategic leadership position requires. So, identify the strategic requirements of your job and focus on them.

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Mental Models: Out of Box Thinking

Mental models are the various thinking frameworks that are used to understand life, make decisions, and solve problems.

Just raw intelligence is not enough to solve problems. A different or a...

Mental Models: Examples

A mental model is an explanation of how something works. They are beliefs, worldviews or frameworks of thinking. You carry a certain kind of thinking in you to arrive at a solution to a problem.

Some examples:

  • Demand and Supply: to understand the economy
  • Game Theory: to understand trust and relationships
  • Entropy: to understand disorder and decay
Yuval Noah Harari
Yuval Noah Harari

“Scientists generally agree that no theory is 100 percent correct. Thus, the real test of knowledge is not truth, but utility.”

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Belongingness
Belongingness

Individuals often seem defined by their need to belong to a certain group: family, school, political party. This can be explained by the fact that it is seldom easier to defend a viewpoint o...

History repeats itself

One useful conclusion that people can draw throughout their life is that, all things considered, it is not easy to find a path that hasn't been walked on before.

Most likely, the ones before you have already tried what you are thinking about, so why not taking into account their reactions to the events when planning on taking up the same path?

Value more learning sources

Once you have decided on a certain path to follow for your professional life, you might also want to consider reading and learning a bit about any subject that can be connected, even in a small degree, to your field. This can be extremely useful and interesting.

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Persuasion through storytelling

Stories are a very integral part of being persuasive. 

Stories trump data when it comes to persuasion because stories are easier to understand and relate to.

What makes a story engaging
  • Suspense and “cliffhangers” allow you to create an addictive narrative;
  • Creating detailed imagery;
  • Using literary techniques for turning simple stories into memorable works of art.
  • Change made easier by providing an example.
Characteristics of persuasive stories
  • Delivery: matters as much as the content.
  • Imagery:  the brain “lights up” in reacting to imagery, truly transporting the reader to the events being described. 
  • Realism: poeple need a “human” element in the story that is easy for them to imagine.
  • Structure: people prefer stories that follow a logical manner.
  • Context: significant impact on the persuasiveness of a story.
  • Audience: determine who you don’t want reading your content along with who you do.
Hardwired for Stories

We love to tell and listen to stories. The 'Story Narrative' is hardwired in us, as we think and remember in stories.

A strong narrative can be the difference between succes...

Creative Problem Solving

Human beings are able to creatively solve problems, alone or in a group. This has given rise to many inventions, shaping common goals shared by a group of people.

We needed a 'sticky' idea to spread it among people, and the story narrative is exactly that.

Relating To The Characters

Stories cater to our Ego. A listener puts himself in the shoes of the protagonist of a story, and an idea is given emotional heft and sturdiness.

The more we are able to relate to the central character, the more engaging, effective and memorable a story narrative becomes.

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Voltaire

“History never repeats itself. Man always does.”

Voltaire
History lessons
The most important lessons from history are the takeaways that are so broad they can apply to other fields, other historical times, and other people. 

The point is that the more specific a lesson of history is, the less relevant it becomes.

Adopting new views 

One of the interesting parts of the Great Depressions from history is not just how the economy collapsed, but how quickly and dramatically people’s views changed when it did.

People suffering from immediate, unexpected adversity are likely to adopt views they previously thought absurd. It’s not until your life is in full chaos (with your hopes and dreams your dreams unsure) that people begin taking ideas they’d never consider before seriously.

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The Science Of Storytelling

According to Will Storr, author of ‘The Science Of Storytelling’, reality is just a phrase for a common set of shared facts and surroundings and is mainly a mind construct. We may not be living in ...

Change Matters

Human beings react to physical and environmental changes all the time. Likewise, a good story requires changes and challenges, and characters need to be provided with certain crossroads of change, else the story does not move.

Cause And Effect

Incomplete stories are filled automatically by the brain, as we have an urge to find meaning in everything. We also tend to believe the simplest explanations. Stories need to be shown a linear cause and effect for the reader to stay interested. If there are too many effects, the effect is lost.

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Importance of failure

We need to start talking about failure as life's master instructor. Experiences in failure are less about not finding success than they are about problem solving, and the skills cultivated a...

People who turned failing into success
  • JK Rowling. One of the most powerful modern writers whose net worth hovers around $1 billion was once living on welfare.
  • Walt Disney. Before the Disney empire was built, he was fired as a writer for lacking imagination and good ideas.
  • Oprah Winfrey was fired from her first TV job as a news anchor for being too emotionally invested in the stories she covered.
  • Steven Spielberg was rejected by the University of Southern California's School of Cinematic Arts multiple times. Today, the profit of his movies exceeds $9 billion.

  • Lady GaGa, with 6 Grammy awards and entry to the Songwriters Hall of Fame, was dropped as a young artist after 3 months with record label Island Def Jam. 

  • Stephen King's failure and rejection as a writer persisted well into his adult years, before striking gold with his story, Carrie.